IPO market remains in favour as resilience continues
22 July 2016: Despite a backdrop of local and global financial market volatility influenced by the likes of Brexit and the federal election campaign, Australian IPOs remain firmly in favour.
Deloitte’s latest IPO review covering the first half of 2016, finds that new listings confidently outperformed the market – up 16.5% on a weighted average basis, while the ASX closed 1.2% down.
There were 33 listings in total, with a market capitalisation of $5.7bn, and $2.6bn of new capital raised. The start of the year typically tends to be the window for smaller raisings, but is also an indicator of the level of capital raising activity still to come in 2016.
Deloitte National Corporate Finance Leader Ian Turner said: “Volatility is here to stay, but investors are largely unfazed by some of these temporary shocks. The first half of 2016 was right up there with the last two years as listings confidently outperformed the market and exceeding the first half of 2015 in both volume and value.”
Key review points include:
- 13 listings to the end of June each exceeded $75m in market capitalisation (with a further three large listings to date in July)
- The 20 small cap listings, on the other hand, had an average market capitalisation of $28m and raised under $10m in capital on average
- Smaller listings delivered, on average, similar returns to the larger ones, but also displayed significantly higher volatility
- Technology, media and telcos (TMT) continued to lead listing volumes by sector, with 12 in the first half of 2016 accounting for $2.1bn in market capitalisation and delivering average gains of 17.3%
- Healthcare listings, while returning average gains of 10.2%, were mixed in terms of individual performance
- Financial services represented 15% of first half 2016 listings and delivered average gains of 13.2%
- Consumer goods and services saw growth, with five listings in the first half, a market capitalisation of $813m and gains of 6.4% on a weighted average, but a more impressive 74.9% on a simple average basis
- A larger number of potential IPOs are exploring dual-track options, highlighting a boom in deal-making.
Deloitte Corporate Finance’s lead IPO director Tapan Verma said: “Conditions continue to see a swell in listings, and favourable returns have enticed investors to flock to technology-related offerings.
“But there may be a stumbling block ahead. Some of the tech companies that have come to market are start-up in nature, and ASIC and the ASX have been collaborating to introduce more onerous admission requirements that will likely impact the number of technology listings at the smaller end. However, the upshot here is that the assets that make it through will inevitably be of better quality and a more assured track record.”
The classes of 2015 and 2014
Average 2015 listing performance to 30 June 2016 was 12%, up from 11.6% at 31 March 2016, but down from 18.2% at 31 December 2015.
Sustainable returns continue to play out in the dominant sectors of TMT and financial services, with gains across both 2014 and 2015 listings. 2015 healthcare listings have seen gains of 13.5% at 31 December 2015 decrease to just 3% at 30 June 2016.
Private equity exits from 2014 and 2015 continue to perform strongly against the market, with weighted average gains of 42.8% and 20.1% respectively.
Verma said: “The key challenge for our economy is it’s obvious reliance on China which means Australia will continue to adapt its traditional resources offering towards a consumer-led growth model – expect to see more IPOs in this space. For investors, the immediate challenge now is the limited supply of growth stocks as private equity firms embark on their next investment cycle.”
Turner added: “This is alongside a renewed focus on asset quality and the fundamentals of businesses seeking to access capital, such as a strong and diverse management team, a highly articulated vision for future business growth to drive value, and, for more mature businesses, a demonstrated operational and financial high performance track record. However, the 'new normal' pipeline is here to stay, if anything we see activity levels on the medium term horizon as strengthening.”
The pipeline over the next few months includes quality assets such as The Good Guys, Autosports Group and Inghams, with Quadrant also reported to be considering an exit of its Barbecues Galore and Super A-Mart businesses.
The remainder of 2016, and looking further ahead into 2017, will also likely see a number of REIT listings, with an estimated value of $3bn, coming to market, as investors look to strong yields amongst global uncertainty.
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